Lenders Love Marketing Plans: You might not get an operating loan without one

'Do you conduct marketing seminars for banks? Can you help some of my customers put together a written marketing plan?"

These were two rapid-fire questions that came at me from a southern Minnesota banker recently during a marketing seminar. My response? "Yes" to both questions.

The lender was frustrated at the high number of loans not paid from last year. At the same time, he was getting requests for 1999 operating loans.

In short, he was tired of loaning money to farmers who don't have disciplined marketing plans. One serendipity of the present low-price crunch might be that it will force many growers to prepare written marketing plans or they won't get operating loans.

The last two years are a good example. Despite big yields in 1998, producers were holding too much 1998 - even 1997 - corn and soybean inventories. So this lender requires a written marketing plan before he will approve a new operating loan.

At the seminar and at individual strategy sessions after the meeting, I was amazed at the range in profitability on similar-sized farms.

The amount of short-term debt a farmer was carrying seemed to depend upon how much grain inventory he had on hand. Usually, growers with the highest short-term debt also had the highest inventory. The opposite was also true. Growers who had good profits, had paid off 1998 operating notes and had bought '99 inputs ahead, usually had sold most of their inventories.

After about a dozen meetings, I found that growers fall into three groups. 1) "Grow it and sell it." This group's common characteristics include a large percentage of rented land, large operating notes, little or no storage and heavy cash needs each fall.

These growers need to sell 60-80% of their crop off the combine each fall. Surprisingly, many in this group are doing well. They sold a lot of crop ahead last year and utilized the loan deficiency payment program to add to their bottom lines.

2) "Store some, sell some." Farmers in this group are not as leveraged, have storage for 50-80% of their crop, and usually need to sell 20-40% of it either for off-the-combine delivery or into the December-January period.

What concerns me about these farmers is they store too much and don't price enough ahead. They hope prices will rally and bail them out by summer.

3) "Big bins and deep pockets." These farmers are older, have good equity positions and enough storage to hold at least one year's production. They're also hit the hardest since many have carried some 1997 crop all the way into 1999. They've not sold any 1998 crop and have seen much of their equity slip away. For the first time in years, they may need to roll over an operating note.

To make marketing plans as practical and easy as possible to follow, we've created three categories of grain.

The "A" bushels are those that need to be sold for delivery right off the combine. The "grow it and sell it" group has a lot of bushels in this category.

The "B" bushels are those you sell on a disciplined, written marketing plan. They're based on price objectives and key time periods that are usually the best weeks to sell. For most farmers, the A and B bushels will account for about 90-100% of the crop.

The last category consists of "P," or play, bushels. These are the few bushels that you take extra risk with and try to sell on the peak-price day of the year. Besides making you extra money, the sale will give you bragging rights at the coffee shop.

Odds are good that you'll fit into one of the three profiles in the table on the opposite page.